Bankers Contend Proposed NCUA Rule Won’t Stem the Tide of Predatory Purchases

A proposed National Credit Union Administration rule governing the purchase of banks by credit unions does not go far enough in governing predatory practices of the tax-exempt institutions, two banking trade groups told the agency this week.

“ABA believes that credit unions are aggressively targeting banks for acquisition to expand their business lines and grow their field of membership outside of their chartered mandate to serve low- and moderate-income individuals,” Justine Underwood, senior director of banking policy at the American Bankers Association wrote, in commenting on the proposed rule.

In January, the NCUA proposed a rule that attempted to make the purchase process easier. The rule states that all such purchases require federal, and in the case of state-chartered federally insured credit unions, state approval. The rule goes on to state that the NCUA will consider the proposed transaction’s impact on credit union members and whether the deal is in keeping with the credit union’s mission.

Banking trade groups have attacked the practice, contending that credit unions take advantage of their tax-exempt status in purchasing banks.

The rule does nothing to provide the increased regulatory scrutiny that such deals need, Underwood wrote. “Expressed more simply, NCUA would allow any tax-exempt credit union to purchase a tax-paying bank, a practice that is growing at an alarming rate, without imposing new restrictions,” he wrote.

Credit unions are targeting banks in wealthy neighborhoods, with the purchases designed to allow the credit union to grow rapidly without regard to their statutory mission, he added.

In its comment, the Independent Community Bankers of America wrote that the NCUA must do more to “stem further mission erosion of credit unions.” Credit unions’ tax-exempt status was provided by Congress because the institutions are supposed to provide financial services to people of modest means, wrote Michael Emancipator ICBA’s vice president and regulatory counsel. Some credit unions have begun to prioritize growth over members, he said.

The NCUA should provide greater transparency to members of the acquiring credit union and should evaluate the needs of the communities to be served, Emancipator wrote. Emancipator is well-versed in the credit union business; before joining the ICBA, he was NAFCU’s senior regulatory counsel.


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